How to select the Line-In depends on which platform your Mac is based, PowerPC or intel.

PPC

If you're using a PowerPC based Mac, open up your System Preferences and select Sound.

Once you have the Sound preference open, Select the Input tab and choose Line-In

Next open GarageBand's preferences and make sure that "Built-In Audio" is selected under the Audio/MIDI Tab

intel

If you have an intel based Mac, you don't have to do anything with your System Prefs, the setting for you is in GarageBand's preferences. Open GarageBand's preferences and make sure that "Built-In Input" is selected under the Audio/MIDI Tab